Nigerian Banking Industry Remains Strong, Risk Management Very Robust

What does the memorandum of understanding of a $100 million trade financing agreement signed between UBA and the Export-Import Bank of the United States (EXIM Bank) mean for your customers and other stakeholders?

For us in Nigeria and for our customers across Africa, it means that they have a source of funding for their transactions, especially the medium to long-term funds which you don’t normally find in the market easily. It implies that once you are importing goods from the US, then facility is available for you to draw upon. For us in Nigeria, for those that are involved in manufacturing, it will also assist them to a very large extent. So, it is not a question of one having a good project but there are no financing. So, it provides liquidity and financing and enables businesses to produce effectively.

A major challenge for SMEs in Nigeria and other African countries is access to finance. How easy will it be for SMEs to access this fund?

I can tell you that it is very easy to access once an SME entity meets the requirements. What do I mean by that? If you are producing for instance, and your products are in the market and are in demand, if you come for the facility, you will be able to access it once your repayment capability is not in doubt. So, the fund is meant for everybody not just the large corporates. SMEs can benefit from that and everybody that qualifies should be able to benefit from it. The problem with SME financing is not just finance, they also have infrastructural challenges. So, because the very large corporates are able to withstand some of these constraints that we have, SMEs become troubled once we have an environment that is very unstable. Take for instance, an SME that has to generate power on its own, do you know the cost of diesel and generator running all the way? The question you ask yourself is if the SMEs have the capacity to push that cost to the final consumers and so on.

In the next few weeks, you will be stepping down as the chief executive officer of UBA. As a bank CEO, what were the challenges you encountered in leading one of Africa’s biggest banks?

Any person that is running a business in a place like Nigeria and indeed most parts of Africa will indeed face a lot of challenges and the first and foremost challenge is infrastructure. Now, your counterparts in Europe and most other parts of the world do not face such challenges because something like infrastructure is given. But here, you are thinking of the generator breaking down, you are thinking of the branch connectivity and so, infrastructure ranks very high as far as that is concerned. Then, you also have all other issues associated with business such as uncertainty and volatility. Also, for banking business, the biggest concern is the willingness of borrowers to repay their loan. This is because if you have a situation where a borrower collects money and has the capacity to repay, but refuses to repay, it is a very big problem. Now, what you do in that instance is that if you have a collateral, you start realising the collateral and the person goes to court to stop you and so on, and you will be in court for a very long time. So, it is a major disincentive to lending in Nigeria. We also believe there should be some reforms in the legal system. Maybe to come up with commercial courts that will enable quick prosecution of lending cases and unwillingness to pay.

So, what do you think is the future of banking in Nigeria?

Nigeria is heavily under-banked. We think that there are quite a lot of opportunities. Banking penetration in Nigeria is about 40 per cent. What I tell people is that the bank accounts that we have or number of customers we have in the banking industry is under 30 million. Now, the telcos have 160 million subscribers or thereabout. So, if you remove duplication of numbers, by and large, you probably have about 70-80 million subscribers. Bearing in mind that every GSM subscriber is qualified to have a bank account, you now see the gap. So, the future of banking in Nigeria is very bright and we haven’t tapped into the retail space. But I believe that with the Bank Verification Number (BVN) and credit bureaux coming on stream, we would be able to start penetrating the retail space. Again, we also need to move away slightly from the kind of lending that we are doing right now. For instance, the big corporates should not be borrowing long-term from the banks. They should look at other ways of raising long-term funds such as bonds, they should look at some form of equity funding and so on, as against just borrowing directly from the banks for long-term projects. So, they should look at long-term funding mechanisms.

What are the other benefits of the BVN project?

I think the BVN for the banking industry is more like a revolution. It is going to open the retail space for us because one very big problem we have been encountering all these while is unique identification for customers. One customer shows up in one bank as Mr. A, shows up in another bank as Mr. B, borrows money and disappears. A fraudster defrauds a particular bank and goes to another bank to do same. So, the BVN will help us to check all these. Once somebody commits a fraud and that fraud is flagged, you can never have the opportunity to commit such a fraud again in another bank or in the banking system because you may not have the opportunity to operate a bank account again. Also, if you have a serial borrower that has been defaulting, once he defaults, it is flagged and every other bank picks it up and it is very unlikely that banks are going to lend to you when they know that you have bad loans elsewhere. So, it will enable people to start behaving properly and also enable banks to role out more products especially in the area of lending.

Looking at the headwinds banks have experienced in recent time as a result of the drop in crude oil, do you think the financial institutions would come out stronger?

I believe that it is not only oil that drives banking. Yes, there are exposures in the oil and gas sector and you also have a lot of industries that are derivatives of the oil and gas sector. But you find out that a bank like UBA is very strong. The reason is because we have expanded beyond Nigeria. UBA has 18 countries in Africa where we have footprints and basically the African countries have started contributing. They started from zero and by the end of last year, the African countries contributed 24 per cent to the profit before tax (PBT). By the end of first quarter of 2016, the African countries contributed 28 per to the PBT. Our ultimate objective is to achieve a 50 per cent balance. Now, when that happens, you find out that the impact of oil is not going to affect UBA much because you have a lot of funds coming from other countries that are not oil dependent. Having said that, I think there are quite a lot of other opportunities for banks operating in Nigeria. In the agriculture space, we have not really explored that. The total portfolio of Nigerian banks is about five per cent, which is very small. Also, the infrastructure space is also there. So, we should start thinking of public-private partnerships (PPP) and creative business models that would enable us create a bigger market as far as banking is concerned.

Flowing from the issue of headwinds, what is your position on the naira devaluation debate?

You see, there are so many arguments about devaluation and no devaluation. There are merits in that and there are also disadvantages in devaluing. For instance, if you are not producing anything and you devalue, you probably will not get the benefits. So, devaluation works where you are very productive and you are exporting. So, it helps exporters. We need to weigh all the consequences before we comment on that. We cannot just devalue for the sake of devaluing. So, we should look at if before deciding to embark on that.

There are views that Nigerian banks are over-regulated and secondly that the industry is too exposed to political control. What is your take on that?

I do not think Nigerian banks are over regulated. I think you need to look at other jurisdictions and see the level of regulations that we have. In fact, when we talk of regulations, I think one of the most regulated environment is the United States and we have seen all the fines, sanctions and other penalties. So, I do not think Nigerian banks are over-regulated and if anything at all, I think they are moderately regulated. Now, in terms of politically exposed-persons, I also do not think we have that in the banking industry. Yes, there may be some political elements that have been pushing their monies into the banking industry, but what you need to know is that the global fight against money laundering and terrorist financing is making it possible for banks to role out very robust programmes to be able to check all those politically-exposed persons. So, I think so far Nigeria is doing good and it is a collective fight by everybody and not just the banking industry.

There are concerns that the fact that some government agencies are beaming their searchlight on banks might have negative effect on the industry and also erode confidence. Do you also hold that view?

No, I don’t think so. The government can beam its searchlight in any particular sector it feels there are issues. You know the government has been beaming its searchlight on politicians for some time, government also beamed its searchlight on petroleum marketers for some time and also on equities traders for sometime. So, I do not think it is going to bring about any negative publicity as far as the banking industry is concerned and so far we have not seen anything.

I am not ruling out the possibility of one or two isolated cases, but it is not one brush that should be used to paint the entire industry. So, I think the banking industry remains strong and governance is very strong compared with where we are coming from, risk management is very robust and I think the Nigerian banking industry is very strong.